with Tom Still

Early-stage investing in Wisconsin has more players, but deal trends ebb and flow

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It was a scene that summarized the evolution of Wisconsin’s early-stage investment community: Six portfolio managers from a statewide “fund of funds” gathered on the same platform to talk about how and where they plan to invest in some of the state’s youngest companies.

Even five years ago, that June 6 conversation at Madison’s Union South wouldn’t have taken place because there was no Badger Fund of Funds — the name for the umbrella venture capital group that covers five different funds across Wisconsin.

In fact, 15 of the 40 or so angel networks and early-stage funds active in Wisconsin today didn’t exist five years ago — and only 10 of those 40 were part of the landscape 15 years ago.

Unless those “smart money” people aren’t as smart as they and their investors think, there must be something about the technology, people, companies, and business climate of Wisconsin that leads angel and venture capitalists to believe there are good deals to be found here.

The generally positive trend in early-stage investing is one theme of the latest edition of “The Wisconsin Portfolio,” which has tracked angel and venture capital deals in Wisconsin for a decade. While the number of deals and dollars invested in 2017 were both down, the five-year surge in early-stage activity is noteworthy.

At least 127 Wisconsin early-stage companies raised investment capital in 2017, the Wisconsin Technology Council publication reported. That’s a 71% increase from five years ago but an 8% decrease from 2016.

More than $231 million was raised by those 127 companies, which is less than the $276 million raised in 2016 but still the second-highest total on record. There were $128.3 million in early-stage investments in Wisconsin in 2013, $218.8 million in 2014, and $209.5 million in 2015.

The numbers indicate the early-stage investing scene in Wisconsin is getting more robust, although Wisconsin remains in no danger of overtaking California, Massachusetts, or New York as a venture capital hub.

In fact, if Wisconsin were to match a typical year’s angel and venture capital activity in Michigan, Utah, or Colorado, that alone would be an accomplishment. Here are other highlights from the report:

Thirty-seven Wisconsin companies each raised at least $1 million from investors, down from 53 companies in 2016 and 46 companies in 2015. There were 27 $1-million deals in 2013 and 38 in 2014.

Average deal size fell from $2 million in 2016 to $1.82 million in 2017, compared to $1.6 million in 2015. Median round size in 2017 dropped to $360,000, down from around $514,000 in 2016 and $600,000 in 2015.

There was a shift in the distribution of funding rounds, with a smaller share of companies (11%) raising between $1 million and $10 million but a larger share of companies (11.6%) raising between $100,000 and $1 million.

Six in 10 companies have raised investment dollars in the past. For 37% of early-stage companies that secured funding, 2017 was the first year doing so, while 63% of startups received continued support.

Health care and information technology continued as the focus of investor attention in 2017, both in the number of deals (67.7%) and dollars invested (79.7%).

About 16.5% of Wisconsin early-stage companies that received funding in 2017 are women-led or women-owned businesses. That’s down from 19.7% in 2016 but still above the reported U.S. average.

An encouraging trend is that investors appear to have discovered parts of Wisconsin outside Madison.